THE MARKET value of Irish Life & Permanent dropped by 45 per cent yesterday after it emerged that the Central Bank’s stress tests may force the company to seek Government capital for the first time, ceding majority ownership.
The company's share price dropped 34 cent to 41 cent a share after The Irish Timesreported that the company, which has avoided a Government capital bailout since the crisis began, may be forced to take public cash given the severity of the tests on Permanent TSB's mortgages and bank downsizing.
IL&P is expected to require between €2 billion and €3 billion in capital, through a combination of mortgage losses as a result of the capital stress test and the cost of deleveraging to reduce the size of the bank by the end of 2013.
The closing price yesterday valued the company at €110 million, leaving it with little hope of raising the required capital on its own. This would make it the sixth and final Irish financial institution to cede part, majority or full ownership to the Government.
Bank of Ireland chief executive Richie Boucher and chairman Pat Molloy met Michael Noonan yesterday for an introductory meeting since his appointment as Minister for Finance earlier this month.
The subject of the discussion was general, though the bankers are understood to have told the Minister that they still believed there were opportunities for Bank of Ireland to raise capital from private investors.
The bank, which is already 36 per cent owned by the State, will come under increasing pressure to cede majority control to the Government following the results of tomorrow’s stress tests. The bank already has to raise €1.4 billion under the previous capital bill.
Bank of Ireland, along with Allied Irish Banks, Irish Life & Permanent, and building society EBS, are being stress-tested by the Central Bank to see how much more of the €35 billion EU-IMF bank bailout fund is required beyond the €10 billion already earmarked for the banks.
International asset manager BlackRock, which has been hired to value the loans of the four lenders undergoing stress tests this week, is considering losses amounting to about 12 per cent of the mortgage books – more than double the level of losses estimated in last year’s capital stress test.
BlackRock is understood to be factoring in worst-case scenarios where the banks must repossess properties immediately and write off much large percentages of loans, using US mortgage losses as a template. They have also based mortgage losses on the level of negative equity in the Irish market.
The Irish lenders have argued the firm’s loan loss estimates based around severe economic assumptions more closely reflect the US, where non-recourse lending exacerbates the scale of mortgage losses at American banks.
The Central Bank has allowed the banks to point out inaccuracies in the loan information. But it is not permitting the four institutions to challenge the findings of the tests to protect their integrity in a bid to bolster the confidence of the international financial markets in the shattered Irish banks.
